Saturday, March 01, 2014

Buffett Gives a Shout-Out, Nobody Hears It

Well the New York Times didn’t mention it, and
the Wall Street Journal didn’t mention it, and for all we know the Arkansas
Gazette didn’t mention it, either, so we’ll mention it: the giant shout-out Warren Buffett gave to
Bank of America in today’s letter to shareholders. (Turns out Carol Loomis was right on it in Fortune, here, but still...)

Until now, we avoided writing anything about the Buffett letter because his annual missive to shareholders has clearly
“jumped the shark,” what with the universal breathless front-page coverage, not to mention
bloggers “live-blogging” the letter like a World Cup final.

But despite all the coverage there was one glaring absence, a statement that seemed to us to be the most interesting, unexpected statement in the document, and it comes where
you least expect it—in his discussion of Berkshire’s stock investments.

Now, most of
these are stocks Berkshire has owned for years, and in some cases decades, and the table listing the stocks is familiar to anybody who has paid the least bit of attention to Berkshire Hathaway.

And this year, as in years past, the table shows American Express, Coke, Goldman Sachs, IBM, Wells Fargo and others.

But in the text following the table, Buffett makes sure to point out that the table excludes Berkshire’s warrants to buy 700
million shares of BAC “at any time prior to September 2021 for $5 billion.”

Buffett notes the shares have a current value close to $11 billion, and says flatly, “we are likely to
purchase the shares just before expiration.”

Then comes the clincher:

“It is important for you to realize that Bank
of America is, in effect, our fifth largest equity investment and one we value
highly.”

Thus at current market prices, Berkshire
Hathaway owns (and values “highly”) a Bank of America position the size of which is 5-times its infamous Goldman Sachs stake, almost triple
its U.S. Bancorp position, and more than its Wal-Mart and Procter & Gamble holdings combined.

...which tells Berkshire shareholders quite a
lot about what Warren Buffett thinks of Bank of America.

For the record, while we never recommend
stocks on these virtual pages—or suggest shorting them, for that matter—the footnote
that always accompanies these columns applies in spades to Bank of America.

But even if it didn’t, that would still strike
us as the most interesting shout-out nobody heard in Warren Buffett’s 2013
shareholder letter.

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

The
content contained in this blog represents only the opinions of Mr.
Matthews.Mr. Matthews also acts as an advisor
and clients advised by Mr. Matthews may hold either long or short positions in
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